DURHAM, NC – High-cost lenders continue to use out of state “Rent-a-Bank” partnerships to evade North Carolina interest rate caps and consumer protections, making it harder for households to meet their basic needs and build financial stability, according to a report issued today by the Durham-based Center for Responsible Lending (CRL).

The report, “Above the Law: How Tech-Enabled High-Cost Lenders Evade North Carolina’s Interest Rate Limits and Deepen Borrower Financial Distress,” suggests that North Carolina’s existing strong consumer protection framework is being tested by Rent-a-Bank schemes that allow non-bank lenders to promote predatory personal and business loans that deepen financial hardship for state residents and contribute to one of seven bankruptcies statewide.

The findings provide new evidence of how Rent-a-Bank lending operates in North Carolina, including how frequently these lenders appear in bankruptcy filings and the loan terms and interest rates borrowers receive. CRL’s review of documents associated with bankruptcy filings shows thousands of North Carolina consumers driven to financial distress by loans with annual percentage rates (APRs) as high as 388 percent, typically accessed through smartphone-based apps. In many cases, borrowers paid more in interest than the amount they originally borrowed.

“Our research shows that high-cost loans, rather than being the lifeline its backers claim, extend and deepen the borrower’s debt by design, increasing financial instability,” said Katelin Kaiser, CRL policy counsel and report co-author. “The Rent-a-Bank business model is designed to evade North Carolina’s longstanding consumer protections by structuring loans – including earned wage advance, debt consolidation and, increasingly, business lending for solopreneurs and small business owners – across state lines.”

Of the 7,274 North Carolina bankruptcies filed between 2018 and 2023, 1,055 (14.5%, or one in seven) had one or more Rent-a-Bank lenders listed as creditors. The prevalence of these loans in bankruptcy filings highlights the real-world harms of Rent-a-Bank lending on chronically underpaid workers struggling to maintain financial stability.

The top Rent-a-Bank lenders listed as creditors in North Carolina were LendingClub, Avant, and Upstart, with LendingClub listed in nearly one in three cases and Avant and Upstart in one in five cases. Except for LendingClub, which in 2021 became a national bank known as Happen Bank, these fintech companies offer unsecured personal loans marketed for debt consolidation and household expenses, partnering with out-of-state banks such as WebBank (Utah-chartered) and Cross River Bank (New Jersey-chartered).

CRL’s analysis also identified well-known high-cost lenders such as OppFi, Enova, EasyPay, and Check ‘n Go, though they appeared less frequently in the bankruptcy filings. These fintech lenders are known to issue installment loans and lines of credit at triple-digit APRs through Rent-a-Bank partnerships with five out-of-state banks: Republic Bank and Trust (Kentucky-chartered), FinWise Bank (Utah-chartered), CC Bank (Utah-chartered), First Electronic Bank (Utah-chartered), and Transportation Alliance Bank (Utah-chartered).

The partnerships allow nonbank lenders to “rent” an out-of-state bank’s charter to originate loans above state lending caps. The fintech lender then markets, services, and collects on the loans, making them difficult to identify through traditional regulatory data.

Examination of federal Truth in Lending Act disclosures regarding loan rates and payment terms showed that while some loans are structured to appear compliant with North Carolina’s rate caps, their size, fees, and repayment structure still can impose a substantial financial burden on borrowers. Even with APRs below the 33%-36% rate caps generally allowed by NC law, these loans can be costly, with large balances that generate high monthly payments and significant interest costs, leaving borrowers less money to cover the rising costs of daily living expenses.

Other lenders clearly exceed the state’s rate cap, charging triple-digit interest rates for loans often used for everyday expenses, such as car repairs, furniture and household goods, and other essential needs.

After analyzing 7,274 personal bankruptcy filings in North Carolina between 2018 and 2023, CRL found:

  • Rent-a-Bank lenders were listed as creditors in nearly 15% of bankruptcy filings. Of the 7,274 filings reviewed, 1,055—or 14.5%, roughly one in seven—listed one or more Rent-a-Bank lenders as creditors.
  • Many loans exceeded North Carolina’s interest-rate limits. CRL reviewed 123 claims from eight lenders. Among 58 claims with visible APR disclosures, interest rates ranged from 14% to 388%, and at least 44 exceeded the 33% cap applicable to the loans reviewed.
  • Even loans advertised below 33% APR could violate North Carolina law. Nearly all of the Avant contracts CRL reviewed exceeded the rates permitted under the state’s tiered system of maximum finance charges.
  • A $600 loan at 388% APR – nearly 10 times the state limit - resulted in a claim of nearly twice the amount borrowed. A Creedmoor borrower took out an Enova/CashNet USA loan, resulting in a $1,367 claim in bankruptcy, compared with $712.57 the borrower would have paid if the loan complied with North Carolina law.
  • Many borrowers entered bankruptcy with substantial debt burdens. Nearly three-quarters (74%) reported annual income below $60,000, with average assets of $115,140 and average liabilities of $172,000. More than half of their average liabilities were unsecured, including personal loans, credit cards, and other debts.

CRL recommends the following actions to combat exploitative Rent-a-Bank schemes in North Carolina:

  • Require fintech lenders to be licensed and comply with North Carolina law. The Rent-a-Bank loophole allows fintechs like Enova and OppFi to engage in partnerships to evade North Carolina law by claiming the bank, and not the fintech partner, is the lender. North Carolina’s Banking Commission should reject these fictitious relationships and require these lenders to be licensed under state law.
  • Increase funding for enforcement and consumer legal support. The North Carolina General Assembly must increase dedicated funding to the North Carolina Attorney General and the Office of the Commissioner of Banks to hold these lenders accountable, and should restore funding to Interest on Lawyers’ Trust Accounts (IOLTA) that supports civil legal aid services for those who cannot afford court representation. These investments would ensure that consumers have meaningful access to legal representation in disputes involving high-cost or potentially unlawful lending practices.
  • Enhance federal oversight of bank-fintech partnerships and lending by banks. Federal banking regulators, including the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation, should ensure that Rent-a-Bank arrangements comply with consumer protection laws. These agencies have previously acted against similar structures from payday lenders in the 1990s and can apply similar scrutiny to modern fintech partnerships.
  • Reject national bank applications by high-cost lenders such as Enova and OppFi. Enova recently withdrew its application for a national bank charter after consumer, advocacy and civil rights groups, including CRL, sent regulators a comment letter highlighting its lending practices. OppFi’s application remains under consideration, but CRL research shows how the lender keeps borrowers locked in a cycle debt. If federal banking regulators allow lenders like OppFi to obtain national bank charters, they will open the floodgates for high-cost predatory lending nationwide, while removing an important enforcement tool.

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Press Contact: Alfred King alfred.king@responsiblelending.org